Explained | Clearing the mounting debt of Air India

The story so far: On Friday (December 3), the Government sought Parliament’s approval for infusion of ₹62,057 crore into Air India Assets Holding Limited (IAHL) or the special purpose vehicle that hosts Air India’s residual debt, liabilities and some assets. Two months back, on October 8, the Department of Investment and Public Asset Management (DIPAM) secretary Tuhin Kanta Pandey announced at a press conference that the Tata Sons subsidiary, Talace Pvt. Ltd., had won the bid for the national carrier, Air India. He said that after the setting of a reserve price of ₹12,906 crore the Tata Sons subsidiary had emerged the winner, quoting a figure of ₹18,000 crore. The other shortlisted bidder, Ajay Singh of SpiceJet, had quoted ₹15,100 crore.

What will the Government do with the infusion?

A senior Government official said Air India will pay back all its debt and dues owed to banks, oil companies, airports and aircraft lessors by the end of this financial year. Explaining the break-up of the equity infusion sought from Parliament, the official said: “₹61,562 crore is Air India’s debt as of August 31, 2021. In addition to this there are excess current liabilities of ₹15,834 crore, which gives us a figure of ₹77,396 crore. Out of this if we remove the debt amount of ₹15,300 crore to be taken on by the Tatas, we get an amount of ₹62,096 crore. This was an estimate at the time and has now been determined as ₹62,057 crore.”

What did Tata Sons get when it bought Air India?

The Air India group is made up of these components: Air India; Air India Express, Air India Engineering Services Limited (AIESL), Air India Air Transport Services Limited (AIATSL; ground handling services to the Air India group and other airlines), Airline Allied Services Limited, or AASL (Alliance Air); the Hotel Corporation of India (Centaur hotels and the Chefair flight kitchens) and Air India SATS Airport Services Private Limited (AISATS is a 50:50 joint venture between Air India Limited and Singapore Airport Terminal Services Limited (SATS).

The Air India sale was the third attempt by the Government of India (incidentally, all under the National Democratic Alliance), the earlier bids having been in the early 2000s and 2017-2018. This time round, the Government offered management control and sale of 100% equity share capital, each, of Air India and Air India Express and a 50% equity share capital of Air India SATS Airport Services Private Limited — which the Tatas have won.

What is the amount of debt the Tatas took on?

The airline’s total debt at the end of August this year was ₹61,562 crore. Of this, Tata Sons (its holding company Talace Pvt. Ltd.) would be taking over ₹15,300 crore, with a cash payment of ₹2,700 crore.

Much of the debt is related to the merger between Air India and the other state-owned carrier, Indian Airlines, which was cleared by the Cabinet on March 1, 2007 to form the National Aviation Company of India Limited (NACIL). Preceding this development — i.e. of the merger — the then United Progressive Alliance government, had in 2005, approved the purchase of 68 aircraft by Air India (from Boeing) — and also the largest commercial aircraft deal in India’s civil aviation history — and a year later, 43 planes for Indian Airlines (from the Airbus 320 family, for $2.2 billion). The Boeing deal was for 23 777s, 27 787s and 18 737s (for low cost carrier Air India Express). Boeing has also built and transferred a state-of-the-art maintenance, repair and overhaul (MRO) facility at Nagpur. Following mounting losses, there was an investigation into allegations about the nearly ₹70,000 crore deal that had caused a financial loss to the “already stressed national carrier”. It also inducted A320Ns on lease from the ALAFCO Aviation Lease and Finance Company in 2017.

According to Mr. Pandey, the airline loses ₹20 crore a day. And, from 2009-10 to date, the Government has infused over ₹1,10,276 crore into the airline; ₹54,584 crore as cash support and ₹55,692 crore as loan guarantees. The four Air India subsidiaries, AIATSL, AASL, AIESL, the Hotel Corporation of India Ltd., and non-core assets, that also include the fabled collection of art work, paintings and artefacts, and other non-operational assets have been transferred to the IAHL.

With inputs by Jagriti Chandra